THE NEW INDIA CIVIL ERECTORS {P) LTD. versus OIL AND NATIONAL GAS CORPORATION

Citation: [1997] 2 S.C.R. 86 · Decided: 17-02-1997 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Case Partly allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
THE NEW INDIA CIVIL ERECTORS {P) LTD. 
v. 
OIL AND NATIONAL GAS CORPORATION 
FEBRUARY 17, 1997 
[B.P. JEEVAN REDDY AND SUJATA V. MANOHAR, JJ.] 
Arbitration Act-Powers of Arbitratol"-Setting aside award-Grounds 
of-Arbitrator-Exceeding jurisdictiolt-Held-Arbitrator a creature of an 
agreement and has to follow limits incorporated in agreement and he cannot 
C interpret-An arbitrator to act within the four comers of the agreement. 
The appellant entered into a contract for construction of 304 pre· 
fabricated housing units for the Respondent. The contract could not be 
completed even within an extended period. The contract was terminated 
by the Respondent and the work was done through another agency. There 
D were disputes between the Appellant and Respondent which were referred 
to a team of two Arbitrators. 
The Appellant had made claims under 19 heads, out of which a total 
sum of Rs.1,09,04,789 was awarded on 11 claims only. The Respondents 
E made 3 claims, ·Out of which one claim was rejected and two claims were 
allowed partly to an extent of Rs. 41,22,178. Therefore, the Appellant was 
held entitled to a net amount of Rs. 67 ,82,620 with interest at the rate of 
18% p.a. from date of award till date of payment. 
The Appellant moved the single judge for making the award a rule 
F 
of Court. The Respondent flied objections seeking to have the awa.rd set 
aside. The single judge over ruled the objection and made the Award a rule 
of Court. 
On Appeal before the Division Bench, the Respondent confined its 
G challenge to claims under five heads only and did not contest other claims. 
The Division Bench upheld the Respondent's contentions as regards three 
claims and rejected the rest. 
On Appeal before this Court, the Appellant contended that there 
were shortages of cement in the bags supplied by the Respondent and that 
H the Appellant had in t.heir correspondences specillcally stipulated that 
86 
1
--
NEW INDIA CIVIL ERECTORS (P) LTD. v. 0.N.G.C. 
87 
each bag shall contain SO kg. of cement, that the arbitrators exceeded their A · 
authority in awarding the amount under this head, that the Division bench 
had erred in not including the area of the balconies in the measurement 
of the built-up area since there were no balconies at all as per the modified 
plan, and that the claim under escalation charges were wrongfully rejected 
by the Division Bench. The Respondents contested the appeal on the B 
ground that supply of cement was irrespective of variation in weight, that 
the stipulation in the Tender was not modified by the Appellant's letter, 
that as regards area covered by balconies, the tender conditions stipulate 
that it is liable to be excluded from the measurements, that the claim of 
escalation charges is not admissible under the contract till completion of 
work and that the arbitrators could not have awarded any amount on this C 
ground. 
Allowing the Appeal partly this Court 
HELD : 1. Since there is formal contract and the terms of 
agreement have to be inferred from the Tender notice and the correspon-
dence between parties, and the attempt of the court is always to support 
the award within the letter of law, the award is upheld as regards 
variation in ~ement bags. [90-G] 
D 
2. The findings of the Division Bench that the arbitrators overstepped E 
their authority by including the area of the balconies in the measurement 
of the built up area is upheld. The arbitrators being a creature of the 
·agreement, must operate within the four corners of the agreement and 
canrlot travel beyond it. The arbitrators cannot award any amount which 
is ruled out or prohibited by the terms of the agreement. [91-H, 92-H] 
F 
3. The decision of Division Bench as regards rejection of escalation 
charges is affirmed. The Single Judge was not right in holding that the 
prohibition of claiming escalation charges is confined to the original 
contract period and does not operate thereafter. It is not a case of the 
arbitrators construing the agreement. It is a clear case of the arbitrators G 
acting contrary to the specific stipulation/condition contained in the agree· 
ment between the parties. [92-D-H] 
Sudharsha11 Trading Company v. Govt. of Kera/a, AIR (1989) SC 890, 
relied on. 
~ 
88 
SUPREME COURT REPORTS 
[1997] 2 S.C.R. 
A 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 808 of 
1997. 
From the Judgment and Order dated 1.8.96 of the Bombay High 
Court in A. No. 913 of 1994. 
B 
F.S. Nariman, Gopal Subr

Excerpt shown. Read the full judgment & AI analysis in Lexace.